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Why did the bail-out bill fail?

By Kevin Connolly
BBC News, Washington

There were a few moments between the casting of the final vote in Congress and the announcement that the $700bn (£380bn) bail-out had been rejected when the world of American politics appeared to be frozen.

Many members of Congress were worried about losing their seats

Votes in the House of Representatives are not official until the Speaker's gavel is lowered and - for what felt like an eternity - the speaker's gavel remained suspended above the desk.

News services waited for several minutes before calling the result - a rare enough occurrence in a world of instant information.

Rumours began to circulate that attempts were being made to change the minds of some of the members who had voted "no".

Stunned

It would be an extraordinary step in a democracy to ask a member of a legislature to simply reverse a vote on an issue vital to the national interest without any extra revision or debate, and the rumours may not be true.

But it captures something of the mood of stunned apprehension in the House that they were believed even for a moment.

In that moment, the House appeared to be absorbing, very slowly, the sheer magnitude of what it had done.

Members had rejected a bill which the Treasury and the Federal Reserve had insisted was essential to the stability and viability of the American financial system - and by extension the financial system of the entire world.

This has all come at the most awkward possible moment in the American political cycle, when normally powerful institutions do not have the normal range of tools of persuasion at their disposal

The Bush administration had argued that without its bail-out plan and the funds to back it, the American economy would begin to grind to a halt.

Everyone knew there was deep unhappiness among both Republicans and Democrats with the nature of the American government's blueprint for rescuing the country but very few - if any - predicted that the sentiment would be strong enough to provoke a revolt on this scale.

Members of Congress have been dealing with two powerful conflicting forces over the last week.

The first was remorseless pressure from the White House - the argument that the country faced a crisis so profound that unless they approved the government's plans, American capitalism would grind to a halt as funds flowing between the banks began to dry up.

But the second pressure which is much harder to measure came from ordinary voters writing or emailing their own members of Congress angrily demanding that they reject a scheme which is universally perceived here as a bail-out of Wall Street bankers.

They are perceived as greedy, incompetent fat cats who have created this crisis themselves and who are now being allowed to pick the pockets of American voters to fix it.

Awkward moment

A majority of House Democrats did back the bill, in spite of their doubts about plans which appear to be rescuing irresponsible banks, rather than the customers they are throwing out of their re-possessed homes.

The real problems came on the Republican side - where a large majority saw this as an un-American measure which flies in the face of the basic rules of capitalism.

To make things worse, this has all come at the most awkward possible moment in the American political cycle, when normally powerful institutions do not have the normal range of tools of persuasion at their disposal.

President Bush is nearing the end of his presidency

George W Bush, his authority sapped anyway by his abiding unpopularity, is very much in the Lame Duck phase of the closing days of his presidency.

He simply did not have the clout to get the job done.

Members of Congress face not just the abstract knowledge of the need for re-election which haunts them throughout their working lives, but the immediate knowledge that they will be facing the judgement of voters in November.

Politicians shy away from difficult and unpopular decisions at the best of times. They are inclined to run a mile from this kind of issue, at least for now.

That is a crucial caveat.

The most frequently asked question of all at this kind of moment is "What Happens Now?" and the short answer is that the Bush administration aided by the two sets of party leaders on Capitol Hill will have another go.

They might need to offer concessions to individual members to turn them around and they will certainly need to re-write parts of the bill - but the US government clearly cannot give up on this.

Frightening

Before the search for a bi-partisan deal can resume, you can expect a fair bit of bi-partisan bloodletting.

Some Republicans are saying they were preparing to vote "yes" until they heard the closing remarks of Speaker Nancy Pelosi who criticised the ethos of Republican economics, which prompted them to change their minds at the very last minute.

Senior Democrats are contemptuous of the idea that senior legislators would plunge their country's financial system into chaos in what would amount to a fit of pique.

The search for a fix is already under way, but you can be sure it will now take place against a backdrop of plunging share prices all around the world.

It is possible that the sense of global crisis may - perversely - offer a way out of this.

American voters simply have not seen this as a crisis that affects their real lives on Main Street - it is seen as a welfare scheme for the humbled plutocrats of Wall Street.

If the problems deepen and people suddenly see unemployment rising because businesses cannot get money from the banks to pay their bills and honour their payrolls, then that sentiment might change.

That is the optimistic assessment - that American lawmakers and voters having registered their pain and anger will eventually fall into line and give the US Treasury the money it wants.

The pessimistic assessment is almost too frightening to contemplate.

It is that a majority of members of Congress, backed by their voters, simply do not believe in a plan which basically involves the United States government borrowing hundreds of billions of dollars to prop up a financial system which is clearly deeply flawed.

If the warnings from US Treasury Secretary Hank Paulson are to believed, such a decision would usher in an age of catastrophe.

We will discover in the next few days which of those two interpretations will be borne out - when the issue is put back before the House of Representatives and the House once again says "yes" or "no".

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